One Hundred And Eighteen Million Dollars An Hour

That is how much money the Federal Reserve Bank of the United States is creating as you wake, work or sleep. That is $85 billion a month and the stuff must go somewhere. It pours out like sugar upon the markets, each market, every market and it is no wonder that the American stock markets are hitting new highs. The spice must flow.

In the bond markets it is low interest rates and compression, a vice closing in progress, as each sector of the Fixed Income markets grinds closer and closer to Treasuries. It is real, it is not an avarice, but it is also the most manipulated market in the history of our country and something that could not be accomplished in other responses to Recessions because the world’s central banks had never worked in this kind of collective action before. It is not earnings and it is not technicals; it is just money and vast quantities of it that come pouring out of Washington each day. The United States found manna from Heaven.

The initial call had been for Inflation, even Hyper-Inflation from some well-known thinkers. It has not happened and the reason, I postulate, is because the underlying economy is in far worse shape than the numbers indicate or most think. The earnings at corporations also rely upon this injection of capital and so the whole boats floats but the underpinnings are shaky, risky and fraught with danger. Any hint of curtailment by the Fed throws out tremors as everyone wonders for how long this will go on and will the rising tide turn to a flood and upset the American boat. It is a very good question. The other possibility is an “Event;” some shattering moment that punctures the hull and sends the whole enterprise into a waterspout where the boat is sucked up into a vortex that will certainly not be Oz.

I play the game. The Rule is to win and not to be eventually right and lose your capital during the process. The compression in bonds has been an absolutely winning hand and in many cases a better bet than equities have been. One of the interesting reasons for this has been the structure of bonds as compared with equities or preferred stocks. Bonds accrue interest every day while dividends are paid quarterly with no accrual. Consequently if you are trading bonds and taking advantage of what you can the accrual part of the equation can add to your winnings in a substantial fashion when interest rates are this low.

There are two maxims in operation now. The first is that euphoria continues on right up until the day when it does not. In the last go-round the “Event” was Lehman and the music stopped. The second maxim is that there is not strategy that wins forever. Frequently the winning bet of last year is the losing bet of the next and I always bear this in mind. In this light one also looks at the Fed; will this outpouring of money go on forever? Fairy godmothers are children’s tales and when someone offers you the glass slippers; let me know.

I have been asked numerous times why the Fed’s balance sheet can’t be thirty trillion dollars and so the game continues. The answer is that it can be but, and a very big but, is that the debt of the United States would also be ten times the size it is now and it would have to be serviced by an economy that only has so many resources as the debt to GDP ratio of the country would be out of sight. Perhaps if Europe and Asia expanded their balance sheets by ten times as well so that on a relative basis everything remained in tandem it could happen but the amount of debt issued by our Treasury would be at levels that would portend some kind of nightmare scenario.

The catch here is the amount of debt that would be created along with the creation of money and that is where the game halts or reverses the course. I suppose it is theoretically possible that the Fed bought all of every new issue, bought 100% of each new Treasury or Agency offering but there are consequences for that kind of behavior that, while unknown, would disrupt private capital in some very significant ways. It would no longer be, and we are close to it now in my opinion, that the Fed is “the lender of last resort” but the only important lender in town. What would it be; JP Morgan at Treasuries +1, Bank of America at Treasuries +2 and Morgan Stanley at Treasuries +3? The boys are driving the train in that direction as risk becomes quite secondary to the money in the system that must be utilized.

Cowardly Lion: I *do* believe in spooks, I *do* believe in spooks. I do, I do, I do, I *do* believe in spooks, I *do* believe in spooks, I do, I do, I do, I *do*!

Wicked Witch of the West: Ah! You'll believe in more than that before I'm finished with you.

I've just been looking at some of the technicals on the four year chart of the S&P 500. I have to say, this chart just looks great. Firstly, there's a clear uptrend, which is a good sign. The second thing to look at is that we've had weekly closes above all the moving averages. Then you look at the MACD, which also is up. I have to say this is one of the best charts I have seen in all my life. If you're not in this market, you need to buy now. I'm as certain that stocks are going up as have been about anything in the markets.

Great article, and quite right about unintended consequences. What has been hidden so far is the effect of ZIRP on small and midsized banks. They are all broke and it's getting worse every day. They are still in business because the FDIC is broke, and DOESN'T HAVE THE MONEY TO SHUT THEM DOWN.

The compression of all things interest related is true, and a great insight. Some of the better minds here should work on that.

Bernanke has been "successful" because of the dollar's status, the best looking horse in the glue factory, but that too will end.

"I have been asked numerous times why the Fed’s balance sheet can’t be thirty trillion dollars and so the game continues. The answer is that it can be but, and a very big but, is that the debt of the United States would also be ten times the size it is now"

not so .. unless and until some authority (congress? the courts?) determines that the fed may not make outright purchases or swap currency, it is free to expand as much as it pleases.

'The initial call had been for Inflation, even Hyper-Inflation from some well-known thinkers. It has not happened and the reason, I postulate, is because the underlying economy is in far worse shape than the numbers indicate or most think.'

There certainly has been inflation, but it has been specifically directed inflation. The money the Fed is pouring out is largely contained within a tight vortex around the financial elite in TBTF banks and Wall Street firms. The last thing they want is wage inflation in the middle or lower end, because then the ongoing theft taking place would become more visible and undeniable to the common person.

But I would also concur things are worse in the underlying economy than what is admitted. Wall Street is making money hand over fist flipping bonds from the Treasury to the Fed, meanwhile people on fixed incomes are getting next to nothing on their savings in terms of interest. The disparity between average income of new jobs versus those that have been lost is severe. The gap between the very wealthy and everyone else is yawning wide. Those with substantial financial assets are able to take advantage of the ongoing inflation by paying the Wall Street boys to get them in the game. But when it comes to the average person with a 401k that has become risk adverse, they essentially have no practical way to make yield on their savings.

That liquidity trap you are referring to will be contained about as well as herpes in a whore house that doesn't believe in condoms. Absolute power corrupts absolutely. Enjoy this opportunity to exchange those paper promises for physical assets of real value, it is the only real hedge that anyone has anyway.

Bernanke is beginning to realize that he is just a stooge swept up in a game that is beyond him, as delineated in his face during his last testimony. Amost none of the money being printed is making it into the real economy in any positive, meaningful way, and instead it's feeding a gambling casino mentality in the banks.

Don't need to tell anyone here that that's not good and won't end well.

True. But ZHers should realize that, if their wishes come true and economic righteousness enters the land, most new jobs are still going to pay shitty salaries. Who is going to create the jobs with great salaries? Mitt Romney?

If righteousness enters, there won't be any new jobs, let alone ones that don't pay well, as the economy will be rebooted from the ground up, and economic activity will revert to the local entrepreneur level. By the time jobs come about within this framework, they will once again be based on true value provided, allowing one to earn an honest living.

Repeat after me: Fake money Fake debt. Now that's out of the way, why the incessant debt whining? Because it's time for banksters to start the other side of the cycle, making those dollars worthless and stealing your real assets...why? Well the boomers are out of the picture, the new generations had crap education, dumber than a stump... and we can't pay them chinese wages cuz the real estate slumlords have to keep your slavery going.

Main street will turn a deaf ear and a blind eye to this just like everything else, if it has not already. Numbness to all of this madness will set in and their collective attention will focus on the next season of American Idol.

Once the fantasy land mindset sets in, puppets are easy to manipulate. In Crimelandia, the person seeking the truth is jailed.

"When you see that trading is done, not by consent, but by compulsion - when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see that money is flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed." - Ayn Rand

Rand perpetuates the myth that it is industry vs. gov't, when, in fact, it the collusion of industry and government against us. The industry that she wrote of doesn't exist today. The corporate bureaucracy is equally prone to evil as is government bureaucracy... the merger of the two is horror. I'll get all sorts of down votes for this... oh well. The world she created in her writing is NOT objective... which make Objectivism... well... not very objective. She falls short in her A=A litmus test, I believe.

It's been a while for me as well. 20+ years, I guess. I don't know the answer to your question but agree with your post, 100%. For the person just above, she could have known or written on the topic. Ford had cozied up to Hitler... tire companies were killing public transportation... the "rise of the MIC" was an available topic for her to consider. She chose, instead, an overly simplistic narrative. I don't think she is worthy of condemnation and vilification the way that many do, but she wasn't "Objective".

Agreed, that was one of the main themes. The road to surfdom can take many paths. It would appear that the Western World is taking the 'ism called Corporatism. Same outcome.... we have been there before.

" I suppose it is theoretically possible that the Fed bought all of every new issue, bought 100% of each new Treasury or Agency offering but there are consequences for that kind of behavior that, while unknown, would disrupt private capital in some very significant ways."

Private capital needs to be disrupted according to everyone at Zero Hedge. If the Fed held all Treasuries then it wouldn't even be debt any longer in any sense of the word. It would simply be an accounting of the money supply. Private capital would have no choice but to invest in productive endeavors instead of paper shuffling. Such printing offset by reduction or elimination of fractional reserve banking would limit the inflationary effects. Income tax would be eliminated. WTF not? To preserve the current banking system?

There are NO productive endeavors in the world of which you speak (input costs will always be too high with the accompanying price inflation, unless you're a TBTF GM type, perhaps). As for the end of the paper-shuffling game? NFW Your life insurance company, for example, will buy all the paper that MS AAPL or any other "cash-flush" business puts on the market.

Until this current monetary regime dies on its own, there is no escape for private capital. It will ALL be consumed by the banks, govs, and good ole entropy.

True dat. I'm still waiting for the inevitable shift out on the yield curve, once it is accepted by conventional wisdom that the Fed's avg. maturity no longer matters. Then they take their entire short-term mess and solve the problem with a gigantic can kick all the way out to the 30 year.

I only wonder if the Treasury will introduce a 50 yr. bond before or after this event?

WILL SOMEONE AT ZH GO AND SPEND 2 HOURS READING ABOUT "THE VELOCITY OF MONEY" ???

They can pump an extra $85bn a month in and it has little or no effect because the velocity of money is rapidly decelerating. They are injecting the money into the wrong place if they want to stimulate growth. They need to give it to the wider public (whose monetary velocity is ~3) instead of the primary dealers (whose monotary velocity is 0.25).

But guess what, the Federal Reserve already know this. They are simply injecting dead mass into the system to replace the deleveraging credit from the previous boom. It's an attempt to maintain price stability in the credit markets, except it it's not dead mass they are injecting it's nitroglycerene and at some point they have to sneak it out again without anyone noticing.

However, one can draw parallels between the market and a casino. So, WTF is your point in pounding the drum of using the casino by god! My choice of not using the shit casino is so that I don't get the shit on me. It is a choice of morality, and I choose to not participate. You choose to use it, good on you..

The whole system is the casino, just because you do not participate in the financial markets does not take you out of the system. It merely means you engage the system with one hand tied behind your back.

If you simply have dollars in your pocket, in your bank, under your bed, then you are in the system and you are being slowly eroded. You cannot hide from the economy, it is everything, it is everywhere, it is not limited by participation in the financial markets. Morality does not have an event horizon in Lower Manhatten.

Horseshit. Only those closest to the printers will ever have access to newly conjured fiat. IF we all ever have access to QE as you seem to think, do not believe for one second it will have any purchasing power at that point.

Well and good, but... Are there not at least two types of debt? Debt that comes from actually borrowing money from Frank the Skank loan shark is debt that I pretty well intend to pay back. Debt that I owe to Uncle Ben 'cause he printed money to give to me in exhange for Treasuries that I printed for him is, well, debt between friends. I somehow suspect that, possessing as he does a machine that manufactures money out of thin air, Uncle Ben really isn't in the game to earn interest on lent money. He plays the game and dispenses his favors for power.

Having gone back and forth on the "all money comes from creation of debt" thesis, I think I've finally come to the conclusin that it isn't what is truly important. Dumb, messed up system, but not the thing that brings it down in time. What matters is not the interest we owe ourselves by cheating, but whether enough of the other players in the world become offended by the degree of our cheating, and then find it to their advantage to act in response. If the numbers on our interest or debt get to be visibly frightening, I'm sure the numbers will be ... changed to something more convienent. Matter of national security and all.

What can't be papered over is when other nations stop accepting Ben Bux for physical goods, or if the distribution of Ben Bux gets so out of balance that citizens stop honoring them en masse; the decision of others to act isn't driven by BigBen's balance sheet, but by belief, degree of pain, and availability of viable alternative options.

but the thing is, they don't think they can stop taking treasurys, because they also have borrowed against them as 'cash'. it's a big game of chicken, just like lehman days, who takes the chips off the table first. goldman would have gone under except they were channelled 80 billlion of the 180 billion via aig because they had the people in place. this time isn't different. the size of the cds globally is beyond a nuclear bomb.

ekm they have already changed the CPI so as to not, in any accurate way, measure inflation. They have rendered the already pathetic ratings agencies useless. They have suspended the debt ceiling (and that will be permenant). Maybe we just inflate from here on out. I know you say the fed can buy the whole market but they can just tell companies to issue more and more shares and they keep buying?

" I have to say this is one of the best charts I have seen in all my life. If you're not in this market, you need to buy now. I'm as certain that stocks are going up as have been about anything in the markets."

That means nothing to me. This market is based on financial fraud.

Phil Grandy said said when the market was up 40% from the low, that people needed to get out of the market, that they had been given a gift. Now he says the same thing as you- you need to be in this market, you have been given a gift.

I don't buy it. They are all saying get in the market. Buffett said buy stocks. I read yesterday that Bernanke says he sees no sign of a bubble. Well, neither could Greenspan. Both Greenspan and Bernanke are known liars.

I'd like to know exactly where the Fed money is going. I'd especially like to know if the 0.1% of uberwealther are being enriched by this money and how. I can't help but believe that they are but I don't know how it is beind done.

1) Highlights why Von mises is far closer to correct than neo-Keynesians in the debate over whether it's HEALTHY to try and stop purely market based recessions or booms (I.E. NOT REACT AFTER CENTRAL BANK MONETARY POLICY HAS ALREADY SET THE STAGE FOR & IS FUELING THE FIRE FOR THESE),

2) Essentially indicts MMT as it MUST BY DEFINITION create larger and more frequent batches of fiat/credit/debt than prior batches in order to perpetuate a fundamentally flawed system.

What most ZHer's fail to mention or understand is what the whole QE theory represents. The Fed MUST continue to pour liquidity, BECAUSE THEY KNOW THE ALTERNATIVE. The moment it stops - The curtain will be torn away and we, as in all Americans and the world, will see everything that has been hidden from public evaluation. Basically, how the whole thing has been a well orchestrated LIE. There is a lot on the line - The amount of money Ben throws at this market reveals what's at stake - Everything!

I'm speechless at the amount... does anyone think this is going to end well?

I don't blame the Bernanke/Geithner for this... without sounding apologetic, they've responded to the credit crisis to stabilize the system. If it wasn't these guys, others would have done so. The REAL people that I blame are the politicians that have allowed too big to fail and their lack of spine to realize that capitalism gone awry is the real culprit.

I'll die with a gun in my hand defending democracy and capitalism... but not crony capitalism. THIS is the real root of the problem - a system that has been perverted and no political courage and leadership to take the tough stance and make the tough choices.

I firmly believe that the politicians and elites know that we're all in a spiral that will require a major reset, which history shows is usually a war and social disruption. They're hoping that things can pick up and with a lift in economic momentum, things will reverse and we can start to get out of the hole we are in. The only problem is that you can't dig yourself out of a hole.

We are definitely looking at a collapse this decade... just no one knows when. Prepare accordingly. You still have time.

"They're hoping that things can pick up and with a lift in economic momentum, things will reverse and we can start to get out of the hole we are in. The only problem is that you can't dig yourself out of a hole."

Actually, they know it's hopeless and so they are helping themsleves and their well-connected buddies to loot what's left before the collapse. Collapse is better when you are living far away on your own private island with cases of the finest scotch, and stacks of pm's. Spend 10-15 years there and come back to North America, maybe, once radioactivity levels drop back down to safe levels.

One would think that the would understand the downward spiral they have created... And it is natural to look for an endgame... a question I have often asked myself. But history is replete with examples of foolish men blindly killing the goose out of sheer wanton greed without any consideration for what is to follow. Or if they do consider, their thinking is entirely delusional.

Or to put it another way... Sometimes I think we give these assholes too much credit.

How have you enjoyed the past 12-15 years? You have been good slaves. We told you it was your duty to keep the economy going and you did just that. You used your home as a piggy bank and now you have houses big enough for 4 apartment units. You have home theaters, Cadillac Escalades, a TV, stereo and game console in every room. You have bathrooms big enough for a party. You have vacation homes, RV’s, motorcycles and gold watches. You live like Kings and Queens. At least you did. Now what do you have? DEBT! No jobs because we sent them all overseas. No money because we screwed the economy and we will rob and tax you for the rest. We control you because we know how to appeal to your hidden desires and your oversized ego. You believe whatever we tell you. Well you can believe me when I say you are screwed. You upset about the economy and politics? We took more than your jobs and money. We took your security, peace of mind, future and your country. We will let you continue to bitch about it on your favorite blogs. At lease for now but when we get tired of that we will take that away too! You have asked us many questions but we only have one question for you, WHAT ARE YOU GOING TO DO ABOUT IT? That’s right, NOTHING!

I know reserve requirements aren't so important these days. But wasn't QE meant (for public consumption) to get the banks lending? Are they?

How are excess reserves of private banks a function of the Fed's balance sheet? I assume you mean that the transaction increases the bank's reserves (i.e. cash)? Can't that liquidity be used to lend more?

That the recent activities of the FED has not revealed the farce that is our monetary system once and for all to all and sundry is testament to man's willingness to remain blind so long as he is comfortable.